The Financial District, home to a long list of planned residential conversions, may be hogging the spotlight when it comes to turning office towers into apartment buildings.
But the city’s largest-ever reinvention of a commercial property will actually be in Midtown, where the former two-building headquarters of pharmaceutical giant Pfizer, at 219 and 235 E. 42nd St., is poised to become a 1,500-unit rental complex.
And as Mayor Eric Adams drums up support for the City of Yes initiative, which would make such conversions easier and more widespread, the Pfizer project isn’t sitting idly by. Demolition is set to begin in a few weeks, developers say.
As more developers and officials express interest in office reinventions as a way to help stem the housing crisis, the Pfizer project, which has somewhat flown under the radar, also serves as a showcase of just how much has to be taken into account, from windows to affordable housing levels, to get such conversions off the ground.
“We’re not waiting for any changes in policy,” said Nathan Berman, the chief executive of project lead Metro Loft Developers, a prolific converter that once focused exclusively on Lower Manhattan, of the Pfizer work. “And we may become an interesting case study for what the city and state are trying to do.”
A major makeover
A massive conversion would need a major footprint, which Nos. 219 and 235 have in spades.
The two empty buildings that are now there contain an unusually voluminous 973,000 square feet of space, according to city records. And the sites, which are between Second and Third avenues, also come with unused air rights, which Metro Loft and partner David Werner Real Estate plan to utilize for new floors.
Ultimately, Metro Loft and Werner will create more than 1,500 units, ranging from studios to three-bedrooms, which likely will be available for lease signings starting in 2026 and move-ins in 2027, Berman shared.
Getting to that point will entail a massive amount of construction. Currently, the windows in the two buildings, which have only ever functioned as offices, can’t be opened, fairly common for office buildings.
But the local housing code mandates that apartments have at least one operable window. Instead of just swapping out windows here and there, however, Pfizer’s developers will go a big step further and replace every window at the site, all 2,000 of them, they say.
Also on the agenda: removing the facades and installing more energy-efficient outer walls, a notable departure for conversions, which so far in New York have tended to keep exteriors as is. But after earlier waves of conversions, eligible buildings with attractive prewar facades are fewer and further between these days, which is forcing developers to consider newer structures, analysts say.
“People walking by those buildings two years from now may think they’re brand new,” Berman said.
The massive facelift won’t come cheap. Berman estimates the Pfizer project will cost “hundreds of millions of dollars, but we hope to not hit $1 billion.” And the extreme price tag seems to have shaped the business plan; all the apartments at the Pfizer site, which will not have any affordable housing, will be offered at market-rate rents.
Though state lawmakers this spring established a program to award property tax breaks for certain conversion projects in exchange for their making 25% of units affordable, some developers are skeptical that those projects can be financially sustainable even with the abatements.
Pfizer appears eligible for the city-administered program because it’s in a central Manhattan neighborhood, will have broken ground after 2023 and will wrap up by 2039. But Berman has questions about how affordable units could stay that way permanently.
“We’ve never had a situation where tax breaks burn off, but you have the affordable units forever,” he said. “It’s a package that needs to be evaluated.” Berman said he is not counting on the incentives to get Pfizer across the finish line.
Pfizer has not yet lined up construction financing and will begin that process in a few months.
Beneath the surface
From a site-selection perspective, the Pfizer properties check important boxes.
Under the current system, developers can generally convert only commercial Manhattan high-rises constructed before 1961. Commercial buildings constructed after that date tended to be much larger than residential ones, and the approval process to build offices is rarely as rigorous as with apartment buildings, so officials made many office sites off-limits to prevent workarounds.
But facing anemic levels of housing production and strong demand, the mayor has proposed easing the rules and allowing conversions of towers from the 1960s, 1970s and 1980s as well.
When Berman’s team went searching for opportunities, however, the old rules were in effect.
At first blush, Nos. 219 and 235 might seem to miss the mark.
The lime-green panels across No. 219’s facade suggest the building dates to the Kennedy era, and glassy and unadorned No. 235 seems of similar vintage. But lurking under No. 219’s colorful skin is actually a prewar building built in 1905; the facade was installed in a 1963 renovation. And No. 235, built specifically to house Pfizer, opened in 1961, meaning it squeaked in under the current criteria.
The block, which sits in what’s known as a C zone in planning terms, also allows for conversions as of right, so no special rezoning is needed, an advantage that does not exist in every commercial district. Adams has proposed rezoning 42 blocks in former manufacturing enclaves in Chelsea and Garment District to allow for up to 4,000 new apartments, but the rezoning is subject to the city’s public land-use review process and so could take a while to play out.
From meds to beds
The 42nd Street makeover, which will eventually result in a building with a new name that has not yet been determined and a new street address, will mark the end of Pfizer’s half-century association with the block.
Founded on the outskirts of Williamsburg, Brooklyn, by German immigrants Charles Pfizer and Charles Erhart in 1849, before relocating to Maiden Lane in the Financial District in 1868, Pfizer broke ground on part of its third location, the building at 235 E. 42nd St., in 1959 and was finished two years later. (The company relocated to 66 Hudson Yards in 2022.)
Home to 1,000 employees when it opened and 2,700 in recent years, interconnected Nos. 219 and 235 aimed to create medication “breakthroughs that change patients’ lives,” according to an inscription across the tile-studded mosaic in the lobby of No. 235.
Pfizer, a prominent vaccine provider during the Covid-19 pandemic, has given up the site gradually in preparing for its West Side move. In 2018 the company sold No. 235, an L-shaped, 33-story site that extends through to East 43rd Street, to Alexandria Real Estate Equities and Werner for $228 million, according to the city register, though Pfizer was allowed to stay for a few years as a tenant.
Meanwhile, Pfizer sold next-door No. 219, a much-smaller but also through-the-block property, to Werner and Alexandria in 2018 for $142 million, the register shows. The deal included both the building and the land.
Next, Metro Loft and Werner are in contract to buy out Alexandria’s stakes in the sites, and a closing is scheduled in the next few weeks, a broker familiar with the transaction said.
In a separate but related transaction, Werner in 2021 leased the land under No. 235, which is owned by the family of the late real estate investor Bernard Kayden, for $407 million, records show. The deal includes an option to buy the land, which Metro Loft and Werner will exercise a few years down the road, Berman said.
A message left at Werner’s Midtown office was not returned, and efforts to track down the Kayden family’s representatives were unsuccessful.
In the details
To be sure, not all upcoming office conversions are near Wall Street. Commercial landlord SL Green Realty Corp., for instance, has proposed converting 750 Third Ave., a 34-story tower at East 46th Street in Midtown burdened with an 80% vacancy rate, into housing. And developer Lalezarian Properties has filed plans to reinvent 650 First Ave., a Victorian-era brewery site near the United Nations, with 111 apartments.
But most of the five-dozen conversions that are in the works, as per the city’s matchmaking Office Conversion Accelerator program, appear to be located downtown. Examples include 160 Water St., 55 Broad St. and 17 Battery Place, as well as 25 Water St., which is the city’s second-largest conversion project, with 1,300 units underway.
For Pfizer, conversions come with the territory. In 2011 the company sold its original Williamsburg location, , at 630 Flushing Ave., where Viagra and Lipitor were developed, to the firm Acumen Capital for $19 million. Acumen later obtained a $58 million loan to redevelop the site, which is home to FreshDirect and other industrial-type tenants today. But traces of the past linger. Blue block letters still spell out the word “Pfizer” over a door.
C. J. Hughes , 2024-06-24 09:48:08
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